USD/CHF drops to over one-week low, bears flirt with 0.9300 mark amid softer risk tone

• A combination of factors dragged USD/CHF lower for the fourth successive day on Monday.
• The CHF drew haven flows and exerted downward pressure amid subsequent USD demand.
• The Fed’s hawkish outlook favours the USD bulls and should help limit losses for the major.

The USD/CHF pair dropped to over a one-week low during the first half of the European session, with bears now awaiting sustained weakness below the 0.9300 mark.

The pair struggled to capitalize its modest intraday gains to mid-0.9300s and drifted into the negative territory for the fourth successive day on Monday. The worsening situation in Ukraine tempered investors' appetite for perceived riskier assets, which was evident from the prevalent cautious mood around the equity markets. This, in turn, benefitted the Swiss franc's safe-haven status and exerted some downward pressure on the USD/CHF pair amid subdued US dollar price action.

The corrective pullback dragged spot prices further away from the 11-month peak, around the 0.9460 region touched last week, though any further downside is more likely to remain limited. The Fed's hawkish outlook, indicating that it could raise rates at all the six remaining meetings in 2022, should act as a tailwind for the USD. Moreover, two influential FOMC members said on Friday that the US central bank needs to adopt a more aggressive policy stance to combat stubbornly high inflation. This, in turn, favours the USD bulls and should lend support to the USD/CHF pair.

St. Louis Fed President James Bullard  - a known hawk - explained why he voted for a 50bps rate hike and said that the central bank’s reputation was on the line if it failed to act with sufficient urgency. Adding to this, Fed Governor Christopher Waller said the war in Ukraine was the reason he didn’t push for a 50 bps rate hike, but that was definitely on the table for upcoming meetings. Hence, the focus now shifts to Fed Chair Jerome Powell's scheduled speech later during the US session. Apart from this, geopolitical headlines will be looked upon for some impetus around the USD/CHF pair.

Technical levels to watch